Four bondholders sue Peabody Energy, hedge funds over stock sale

CHICAGO, March 9 (Reuters) - Four individual investors of Peabody Energy Corp are accusing the company, certain hedge funds and other parties involved in the coal producer's Chapter 11 bankruptcy of breaching their fiduciary duties, according to a lawsuit filed on Thursday.

The four investors, who hold senior unsecured bonds of Peabody, the largest U.S. coal miner, have alleged during the Chapter 11 proceedings that they have been unfairly treated under the reorganization plan.

Peabody has denied the allegations in the lawsuit, which was filed with the U.S. Bankruptcy Court in St. Louis.

The investors also named as defendants the trustees of their bonds and the Chapter 11 committee that represents their interests.

At the heart of their complaint is a plan to raise $1.5 billion by selling stock in a reorganized Peabody. The refinancing forms a key part of the company's plan to slash $5 billion of debt and exit Chapter 11 protection.

The stock is being offered to holders of the company's unsecured bonds, except individual investors, denying them potentially lucrative returns.

This violates the basic promise of bankruptcy that creditors of equal standing receive equal treatment, they argue.

Peabody has about $4.5 billion of bonds outstanding, and the lawsuit says individual investors hold up to 7 percent of those securities.

The investors, who filed their lawsuit strictly on their own behalf, requested a jury trial to address their complaints.

Peabody will ask U.S. Bankruptcy Judge Barry Schermer of St. Louis to approve its plan to exit bankruptcy, which has wide support from other creditors, on March 16. (Reporting by Tracy Rucinski; Editing by Leslie Adler)